Judge says Kansas City payday lender should pay $132 million to duped borrowers
A judge has recommended that a Kansas City payday lender pay $132.5 million in restitution to borrowers duped by their loan agreements.
An administrative law judge also said that Integrity Advance and its chief executive James Carnes, a Johnson County businessman, should have to pay $7.5 million and $5 million in civil penalties, respectively.
The recommendation came last month in a long-running case brought by the Consumer Financial Protection Bureau, a federal consumer watchdog agency, against Integrity Advance and Carnes.
The latest recommendation finds that Integrity Advance is on the hook for a far greater amount than a previous recommendation in the CFPB case. In 2016, a different judge suggested that Integrity Advance was liable for $38 million to its customers. The director of the CFPB rejected that 2016 recommendation and sent the case back to a different judge last year for a new recommended decision.
Earlier this year, the U.S. Supreme Court ruled that the structure of the CFPB was unconstitutional and that its director could be removed by the president. That ruling could have an effect on the ultimate outcome of the Integrity Advance case.
On Thursday, attorneys for Carnes and Integrity Advance filed an appeal of the judge’s recommendation. The appeal cited the Supreme Court’s finding about the CFPB’s structure and also argued that statutes of limitation have now passed, preventing the CFPB director from ratifying the judge’s recommendation.
“We disagree with the Administrative Law Judge’s recommendation,” said Richard Zack, a Philadelphia attorney representing Integrity Advance and Carnes, in an email. “We are confident that, at the end of this process, Mr. Carnes and Integrity Advance will be vindicated and found to have no liability.”
In 2015, the CFPB brought charges against Integrity Advance and Carnes, accusing the company of extending deceptive payday loans. Payday loans are short-term, high-interest loans that are often marketed to borrowers as quick and easy access to money.
Critics of payday loans say they exploit the financially desperate and tend to trap borrowers in cycles of debt that become difficult to escape.
Kansas City, in particular, is a nexus for payday lending operations that have been accused by civil and criminal authorities of predatory practices.
The CFPB said Integrity Advance misled borrowers about how much it would cost to repay the loans. Borrowers were given the impression that a $300 loan would cost $390 to repay. But, according to the CFPB, the loans were set up to auto-renew, the result being that unless a borrower took certain steps to pay back the loan all at once at the first due date, a $300 loan could end up costing $1,065.
The CFPB also took issue with Integrity Advance’s use of “remotely created checks,” or demand drafts that let the company make withdrawals from a borrower’s bank account if the borrower had previously revoked the company’s authorization to make withdrawals.
The judge agreed that borrowers did not give Integrity Advance permission to use these remotely created checks and resulted in occasions where withdrawals were made from borrowers who had paid back the total amount described in the loan contract.
“Thus, taking the money from consumers’ accounts, regardless of amount, is inherently substantial injury,” the judge’s recommendation said.
Integrity Advance made loans from 2008 to 2012, courts records say. The company’s assets were sold to a Dallas pawn shop’s operators for $50 million.
